A basis point is 0.01 percentage points. If a central bank lifts its policy rate from 15.00 percent to 15.25 percent, that is a rise of 25 basis points. Traders and policymakers use the unit because saying “twenty-five basis points” is clearer than mixing percentages and fractions.
Key takeaways
- 100 basis points equal one full percentage point.
- Bond prices move when yields shift by only a few basis points.
- Fee differences of 10 to 20 basis points compound over long periods.
- Always confirm whether someone means absolute rate levels or changes in basis points.